Lumen Technologies Inc (LUMN) 2004 Q3 法說會逐字稿

Good day, ladies and gentlemen and welcome to the CenturyTel third quarter 2004 earnings call.

At this time, all participants are in a listen-only mode.

Later, we will conduct a question-and-answer session and instructions will follow at that time.

If anyone should require assistance during the conference, please press star, then zero on your touch-tone telephone.

As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference Mr. Tony Davis, Vice President, Investor Relations.

Mr. Davis, you may begin.

Thank you, Patty.

Good morning, everyone.

And welcome to our call today to discuss CenturyTel's third quarter 2004 earnings results released earlier this morning.

During today's call, we will refer to certain non-GAAP financial measures.

And we have reconciled these measures to GAAP figures in our earnings release which is available on our Web site at www.centurytel.com.

Your host for today's call is Glen Post, Chairman and Chief Executive Officer of CenturyTel.

Joining Glen on our call today is Stewart Ewing, CenturyTel's Executive Vice President and Chief Financial Officer.

Also available during the call today is Karen Puckett, CenturyTel's President and Chief Operating Officer.

We will be making certain forward-looking statements today, particularly as they pertain to guidance for fourth quarter and full year 2004 and other outlooks in our business.

Please review our Safe Harbor language found in our press release and in our SEC filings which describe factors that could cause our actual results to differ materially from those projected by us in our forward-looking statements.

For anyone listening to a taped or Web cast replay of this call, or for anyone reviewing a written transcript of today's call, please note that all information presented is current only as of October 28, 2004, and should be considered valid only as of October 28, 2004, regardless of the date listened to or reviewed.

At this time, I will turn the call over to your host today, Glen Post.

Glen?

Thank you, Tony.

We appreciate you joining our call today as we review CenturyTel's third quarter 2004 operating performance.

CenturyTel again achieved solid financial performance during the third quarter as revenues exceeded our expectations for the quarter and diluted earnings per share was at the high end of the guidance that we had previously provided.

Earnings per share of 60 cents for the quarter was also in line with the First Call consensus estimate of 60 cents per share.

Even with the expected declines in intrastate toll and USF revenues and declining access lines this year which we have discussed with you during past conference calls CenturyTel continued to achieve year-over-year top line revenue growth during the third quarter.

There were several primary factors driving this growth, which more than offset those anticipated declines.

First of all, we had higher long distance revenues resulting from continued penetration of our customer base and increased success in marketing long distance to our business customers.

Also, we had continued penetration of enhanced calling features, driven by our bundled service offerings.

Which added to our revenues.

We also experienced increased data revenues primarily as a result of continued solid growth in DSL subscribers.

And finally, fiber transport revenue continued to grow in our LightCore operations.

Customers continued to show strong demand for CenturyTel's bundled offerings as we added nearly 15,000 bundles during the quarter.

Simple Choice customers now represent 14.5% from our residential access lines up from 9.6% year end 2003.

We also continued to see strong demands from are our customers for CenturyTel's long distance and DSL services, as we added nearly 34,000 long distance lines and over 12,000 DSLs, customer connections, during the quarter.

Since the year-end 2003, we have increased our long distance lines that we serve by nearly 15% in our DSL customer served by nearly 60%.

At the end of the third quarter, we served more than 1,037,000 long distance lines and over 120,000 DSL customers.

Our average revenue per line excluding our fiber transport and CLEC businesses increased to $81.74 in third quarter compared to $81.53 in the third quarter 2003.

If you exclude access revenue, our average revenue per customer increased by 4.1% for the quarter.

Our cash flows remained strong as we generated more than $110 million of free cash flow during the third quarter.

Through the first nine months of the year, we have generated nearly $379 million of free cash flow and returned more than $342 million to shareholders through our cash dividends and share repurchase program representing about a 90% payout of free cash flow.

During the quarter, we continued to make progress by a $400 million share repurchase program authorized in February of this year.

We required more than 1 million shares of common stock of an investment of approximately $34.5 million for the quarter.

Through September 30, 2004.

CenturyTel has repurchased nearly 10.9 million shares of outstanding stock.

The total valve more than $318 million represented completion of nearly 80% of the total authorized program of $400 million.

We have also repurchased in that period of time about 8% of our outstanding shares.

Before turning the call over to Stewart for additional detail on the financial results for the quarter I want to update you on a couple of operational items.

First in our early October we completed the conversion of our local exchange customers to our new billing system and customer care system.

There have been no major issues to date which is consistent with our experience with prior conversions.

Also as you are probably aware, CenturyTel announced during the third quarter reseller agreements with Echostar dish, for satellite TV service, and with Cingular for wireless services.

We are looking forward to offering our customers satellite video and wireless services as part of our bundled offerings in the months ahead.

At this time, I will turn the call over to Stewart to provide additional detail on our results for the third quarter and to update you on our financial guidance for the fourth quarter and full-year 2004.

Thank you, Glen.

During the next few minutes, I will review the highlights of our operating results for the third quarter and provide a few comments regarding our capital structure and liquidity.

I will then conclude my remarks with a brief discussion of the guidance provided in our earnings release.

Also, while we are currently plan to provide specific 2005 EPS guidance, in January of 2005, I do want to provide you additional commentary today for your consideration as you update your 2005 estimates.

For third quarter 2004, operating revenues grew 1.2% to $607.4 million.

Up from $600.3 million reported in the third quarter a year ago.

Local services revenues for the third quarter 2004 were a little less than $180 million, this compared to $179 million in third quarter of last year.

Once again, reflecting our ability to drive revenues from the increased penetration of enhanced calling features that more than offset the revenue declines associated with access line declines.

Network access revenues were 240.6 million, versus 252.8 million in third quarter of 2003.

This $12.1 million decline primarily resulted from anticipated lower universal services fund revenue, in prospect toll revenue, and lower prior year interstate revenue settlements.

Our long distance revenues were $49.7 million versus $45.2 million in the third quarter of 2003.

A 10% increase due to the growth in the minutes of use driven by subscriber additions, as well as higher minutes of use per customer, which were partially offset by lower average rates.

Data revenues increased 12.9% from $62 million in third quarter 2003, to $70 million in third quarter of 2004.

This increase was primarily driven by DSL subscriber growth.

Our fiber transport and CLEC revenues increased 41.3% to $19.1 million in third quarter of 2004, versus $13.5 million in the third quarter 2003.

About half of the increase was driven by the fiber asset acquisitions made during 2003 and the other half was driven by internal customer growth.

Our internal revenue growth rate for the third quarter was 1.76%.

We continue to believe that our revenue growth has been impacted by product substitution, competition in selected markets, and the lack of job growth in our service areas due to the economic environment.

Our operating expenses on a quarter to quarter basis were up a little less than $17 million, of which about $8 million was due to an audit of our operating taxes, and the remainder was primarily related to growth in our nonregulated business, our long distance and our DSL business.

Operating cash flow are for the third quarter of 2004 was $308.2 million, compared with $315.5 million in the third quarter of 2003.

For the third quarter, we generated an operating cash flow margin of 50.7%.

Our operating income for the third quarter of this year was 181.2 million, and net income was 81.1 million.

We ended the quarter with approximately 2,336,500 access lines, as we experienced a loss of approximately 14,000 access lines during the quarter.

We added approximately 34,000 long distance lines during the third quarter, bringing total long distance lines to nearly 1,037,300 as of the end of the quarter.

During our conversion to Ensemble we determined that there were a little over 10,000 zero usage lines which we removed from our long distance subscriber base.

This correction applied to prior periods.

Long distance line penetration in our local exchanges as a percentage of total access lines reached 44.4% at the end of the third quarter of 2004, versus 37.7% at the end of third quarter a year ago.

We continued to experience good customer response from our tiered DSL offerings, and integrated bundles, including DSL, with the addition of more than 12,000 DSL subscribers during the quarter.

We ended the third quarter with nearly 121,000 DSL subscribers, or approximately a 7.8% penetration rate of our total DSL enabled lines.

From a capital structure and financial strength perspective, CenturyTel is positioned very well and we're in excellent shape from a liquidity standpoint.

As Glen mentioned earlier, CenturyTel generated $110.6 million of free cash flow, during the third quarter, resulting in free cash flow for the first nine months of 2004 of nearly $379 million.

During the third quarter, we invested $34.5 million to repurchase common stock under our share repurchase program and ended the third quarter with nearly $169 million in cash and cash equivalents.

Which is an increase of a little less are $73 million over the $96 million that we had on hand as of June 30, this year.

As of September 30, 2004, CenturyTel's debt to equity ratio was .9 to 1, and net debt to annualized operating cash flow was 2.3 times.

So we're well positioned financially with a solid balance sheet, supported by stable cash flows, which we believe provides us with the liquidity and the flexibility to execute our growth and investment strategies in the future.

Finally, I will briefly discuss the 2004 guidance provided in our earnings release.

As always, our guidance excludes nonrecurring items.

For fourth quarter, 2004, we anticipate total revenues to be in the range of 590 million to 605 million.

We also expect diluted earnings per share to be in the range of 56 to 60 cents for fourth quarter of this year, bringing our anticipated full-year 2004 fully diluted earnings per share to $2.34 to $2.38 range.

A few items of note regarding our expectations for the fourth quarter.

Since the fourth quarter is historically our most difficult quarter of the year in terms of access lines, we expect fourth quarter line losses to exceed third quarter line losses.

Additionally, we expect about $1 million of increased amortization expense related to the new billing systems.

And we anticipate fourth quarter cash expenses to be slightly lower than we incurred during the third quarter, due to the operating tax adjustment that we had in the third quarter.

Our fourth quarter diluted earnings per share guidance does not include any shares that we may repurchase during the fourth quarter.

I would like to conclude my remarks today with a few comments related to 2005 that will hopefully help you update your models for next year, since according to First Call, 2005 diluted EPS estimates currently range from $2.03 to $2.65.

First, the increased national average loop costs are expected to negatively impact CenturyTel's universal service fund receipts, and diluted earnings per share by 5 to 7 cents in 2005.

Compared with 2004.

Additionally, we currently anticipate the roll-out of our satellite entertainment and wireless services to negatively impact diluted earnings per share by approximately 5 to 9 cents.

Subject to market conditions and the availability of other investment opportunities, we expect to complete the previously announced $400 million share repurchase program and also undertake transactions that will mitigate the dilutive effect of the $500 million in equity units that are currently scheduled to settle in May of 2005.

As a result of all of this, we currently anticipate 2005 interest expense to be in the 200 to $210 million range.

This concludes our prepared remarks.

We will now open the call for a few questions.

Thank you.

Thank you.

Ladies and gentlemen, if you have a question at this time, please press the one key on your touch-tone telephone.

If your question has been answered, or you wish to remove yourself from the queue, please press the pound key.

Our first question comes from Daniel Enriquez of Goldman Sachs.

Hi, good morning.

Thank you.

I have two questions.

They're both related to the 2005 guidance.

First, on the costs of the resale agreements, apparently it's about 11 to $20 million back in your EPS guidance.

Can you tell us how this money will be spent and what -- exactly what, you know, this will be directed to?

And on top of that, is there any CapEx also that we should be aware of?

And then the second question is on your USF revenue guidance.

Do you think -- what do you think is driving this time around the increase in the national average cost of loop?

Do you think this is something that we -- that you would expect also over the next few years?

If you could give us any color on that.

Thank you.

Okay.

Daniel this is Glen Post.

Regarding the spending for the wireless and video services, first of all, the biggest driver of course is going to be just the cost of service, in a resale situation.

For every unit you sell, there is going to be a cost of the service, whether it's minutes of use from wireless or if it's the cost of providing the service to the video on a per customer basis.

Also we will have customer service start-up costs.

We will have provisioning set-up costs.

Those types of situations.

We expect break-even in our DBS business in a little over three years and the wireless in about three years so it will be about a three-year break even we think and of course that depends on how fast you drive the customer base, the more customers you add, in both those business, the higher your cost of sales, and the longer it will take to break even.

But based on our estimates, we're going to be about three years to break even here.

And the -- just on a follow up, the 5 to 7 cents, this is the net, so you're assuming also the revenues or the costs or you're just talking about the costs?

This is the net.

Net okay.

And really the, 5 to 7 cents really sort of depends on our success in terms of selling customers because as Glen said the more customers you sell, the more -- the variable costs associated with it.

Uh-huh.

In terms of the USF revenue guidance, you know, the guidance that we're giving there is really just based on information and feedback that we're getting from USAC so, and we really don't know any of the details behind, you know, what is driving the national average cost per local loop up.

Okay.

Thank you.

Our next question comes from Frank Louthan of Raymond James.

Hi, good morning.

I just going a little bit further, do you expect -- do you expect the impact from -- from the wireless and sattelite to be more ratable throughout the year, is it going to be more back-end weighted, and will any of that hit the fourth quarter?

I apologize if you already said that.

And then secondly, on the equity units, are you going to be remarketing the note, and maybe you can walk us through that?

You keep saying the interest expense is a little bit higher than we had modeled.

Maybe you can walk us through how you expect the debt trends to be in -- next year.

Frank, the -- in terms of wireless and DBS, there will be a minimal impact on fourth quarter possibly but it won't be much.

And we would expect that to be more back-end loaded, as we ramp that up, you know, during next year.

So it would be more, you know, probably second, third, fourth quarter loaded.

In terms of the equity units, you know, we're not exactly sure how we're going to handle those at this point.

There are two or three ways that we can handle it but I guess what we're saying is given the current environment and circumstances, you know, what we would expect to do would be to find a way to -- if we do remarket the note, to use that cash to repurchase the stock.

Basically, the interest expense estimate that we gave, you know, builds a little bit of cushion for rates going up next year, for the variable rate debt that we had.

And you know, our interest expense this year will probably end up around $210 million or so, towards the high end of that.

So, you know, hopefully we'll, you know, we should be able to remain within that range, maybe towards the lower end of the range next year.

Okay.

Great.

And any update on competitive entry in your markets, any changes in the competitive forces from the cable providers, or any overbuilders?

Thanks.

Frank, no, no updates, new competitors, we do not have a VoIP cable offering yet in one of our marketplaces.

Okay.

Great.

Thank you.

Our next question comes from Richard Klugman of Jefferies and Company.

Thank you very much.

Can you hear me okay?

Yes, Richard, we can hear you.

Great.

Thanks.

I wasn't sure.

Frank actually just asked both of the questions that I wanted to ask on the interest expense and the equity units, so I will just say -- I just walked out of a Verizon meeting where they said there are potentially 10 to 15 million access lines that they might consider divesting or spinning off at some point in the future.

I was wondering, does that -- statements like that whet your appetite?

Richard that's -- we look at all of the acquisition opportunities as -- you can tell by what happened with SBC lines and the New York lines, Verizon pulled off the market recently, the expectations of the sellers have been higher than certainly we're willing to pay I think, and I think that we're going to continue to maintain a very disciplined approach.

We think at the right place, there can be value in rural access lines, and small city access lines, so we will continue to look at those opportunities but we will take a very disciplined approach.

We'll be focused basically on long-term cash flow generation.

And return to shareholders.

That will guide our decisions.

But bottom line, we will maintain a very disciplined approach.

Well, I say that, meaning that in the absence of an acquisition, I think you guys have said earlier, and at the analyst meeting, that once you're done with the share buybacks, you really essentially have a decision to make here with a fairly healthy balance sheet, in terms of adding on another share buyback, instituting a more substantial dividend, all of those options.

Do you have any update for us in that regard?

Richard, really, we expect to complete our $400 million buyback program in the weeks and months ahead.

The board will make that decision of course.

We are looking at the -- as Stewart just discussed, the possible buyback of the equity units will be $500 million there, if we go that route, depending on market conditions, and investment opportunities, but it's a dynamic situation.

We're looking -- it's something that we look at constantly.

We understand the desire to drive by shareholders to either put -- to bring cash back to the shareholders or drive value with operating the Company.

We prefer to drive value operating the Company, with acquisitions because that's what we've been very successful at in the past.

But to do that, you have to buy assets at the right place, based on what you expect the returns -- long term cash flow returns to be.

And that's -- we will look at those opportunities and if they don't develop, then we'll continue to use our cash in the best method we can to bring value to the shareholders.

One last thing, if I could.

And not to harp on the subject too much, but, you know, you had said before, I think someone asked on the last call, about doing something along the lines of Citizens with what they did with their dividend, and you seemed to express a little skepticism.

The market has embraced that to some extent, their stock has done much better.

Does that recent performance influence your thinking as you consider uses of cash going into 2005?

Well, certainly, we're very interested in Citizens, how they perform in the market and also operationally, which will help drive that.

We remain concerned about the requirements of this business from a competitive standpoint, long term, the need for cash as businesses drive value for shareholders long term.

It may work very well for them.

We just remain concerned with the competitive aspects and technology advances that we're seeing that we have to be careful how we leverage the Company.

Right now, we would not want to leverage up like they have.

We want to maintain our investment, great credit ratings and keep our options open at least for the time being and see what opportunities develop here.

So yes, we are considering closely what Citizens is doing and how they're performing in the market.

We look at that on a regular basis and it's part of our discussions with our board, every time we meet as far as what we do with our cash, and looking at all the alternatives.

Great.

Thank you very much.

Our next question comes from David Genaso of Merrill Lynch.

Good morning.

Can you just please give us an update on the regulatory issues, what you expect in the coming months, with regard to topics of universal service and inter-carrier compensation?

Thanks.

Good morning, Dave.

Karen Puckett.

I think, you know, on -- there is a couple of important documents out there before I talk about those.

I think in general, there is a lot of momentum around a telecom rewrite.

I would say that the industry is-- I wouldn't say what I think is or isn't going to come out of that.

I think visibility and stability is important.

So some step forward are very necessary.

The question is, is it a rewrite or is it an augmentation.

So I think we will get clarity into that, in the next, you know, three months here.

Some key dockets that are up, there's probably four key dockets that are up -- really the categories are around inter-carrier compensation reform.

You know, you had the ICF file, you've had other groups files, there is a -- I think a good kind of summit going on in the last day or two in D.C. trying to take the best of the best, and we're pretty -- we're very optimistic about the outcome of that, believe that the FCC will probably have a notice of further rule making soon.

Probably the other two dockets around USF, two categories would be the basis of support and ETC, I think the ETC opportunity is around looking at wireless ETC approval, and a minimum of certification process, and due diligence in terms of showing what it does to better public good, and advancing the goals and objectives of the USF.

So probably the third one there would be around the Vonnage petition on the IP telephony and we could see that broken down into two steps but I do believe that there will be some ruling out of that here probably by the end of the year, maybe first quarter of next year.

On the first two items, in inter-carrier comp and the USF, what timing would be associated in your opinion with those?

I think on the USF, probably the ETC portability docket, February 2005 is when they have to have a decision, because that was the rules and recommendations that came out of the federal state joint board, and on the basis of support, I would say that probably would happen sometime in the first quarter, also. 2005.

Okay.

Thanks.

Our next question comes from Nigel Coe of Deutsche Bank.

Thanks, good morning.

I just want to come back to the satellites and the wireless costs for next year.

Obviously, you've based that on a number of assumptions in terms of subscriber take rates.

Can you give us some idea of what's -- what kind of numbers are within that -- that estimate, and secondly, given that you said it's going to be more back end loaded would you expect 2006 to be higher than 2005?

Thanks.

Nigel, first of all, if the plan goes as expected, if we begin serious rollout in the first quarter of next year, we would expect the actual impact to be less on '06 earnings than on '05.

Of course, as Stewart mentioned, that depends a lot on just how many customers we drive each year.

But we will have the initial cost of implementing service, provisioning customer service, invested in, and that initial cost will be spent.

Your first question, I'm sorry, was --

Yeah, the first question was, what kind of take rates are you assuming within that forecast?

Well, we decided not to disclose really our forecasting customers.

We have a lot of sensitivity analysis around that.

We've looked at what SBC has announced on DBS with the public information areas and built around that.

Some nice force percentage penetration.

We've looked at what we can find other companies done on the wireless side and really, based on our analysis, on what's been achieved out there, there is a lot of sensitivity around it.

As far as pricing is concerned, we're going to hope to price competitively with the wireless piece.

Only as part of the bundle.

We would not offer services away from the bundle.

And DBS, basically we will reflect -- respect Echostar's pricing with our pricing.

Now as part of the bundle we will have bundled discounts for both of those services, as part of the bundle.

Our discounts to the bundle.

Okay.

Thanks, Glen.

Our next question comes from Donna Yeagers of Janco Partners.

Hi, I just had two questions.

Just a follow-up on the satellite and wireless resale, you guys are going to bill for that, right?

So those will be your customers?

That is correct.

We will control the customer relationship, basically.

Okay.

And on -- I was just wondering about future technology, are you guys doing any tests for WI-Max to maybe use this for DSL longer term to some of the longer loop areas?

We are looking a the WI-Max very closely and in different scenarios, our technology group, engineering group has looked into that pretty extensively and we don't think it's where that needs to be yet but we think it will get there.

We hope it will be part of our -- technology resource we'll be utilizing in the months ahead.

Great.

Thanks.

Our next question comes from Edward Yang of CIBC.

Hi, thank you, good morning.

Just following up on the outlook for '05 again, I know you have given us a more in depth outlook in January, but could you provide us with some additional color on how we should think about how the other parts of the business should trend next year in terms of what the organic growth will be, aside from some of these other issues, because it would seem like on the margin DSLs becoming an increasingly profitable business, bundling is helping your revenue, so there should be some positive impacts as well for next year, and basically, are we supposed to -- or should we take the 2004 number, just subtract out the 13 cents in negative EPS impact next year or should the underlying business offset some of that dilution somewhat?

Thank you.

Yeah, it's -- you know, we'll flesh it out in January.

I guess when we give our guidance for '05, but, you know, just in terms of the DSL, I mean we're using -- we're selling tiered DSL now, you know, with a little bit lower prices, so the margins are, you know, maybe -- there maybe won't be as much increase there from an operating income standpoint.

With respect to the DSL.

And just the margins that it will drive.

So, you know, I guess the -- you know, we just can't give full 2005 guidance right now.

And as soon as we can, we will.

And we just wanted to try to give some information on some -- a few issues or items that we did have some color on now and some visibility into and I think the rest will just have to wait.

This is Glen.

Obviously, we expect some offset due to DSL revenue, and LD revenue and other nonreg, the fiber transport operation, we're not ready to say how much that will be, but obviously we expect some growth there, on the revenue side as Stewart's pointing out as you get these other businesses lined with more D reg businesses, your margins are going to be lower, the positive side is your CapEx per dollar revenue is going to be less so hopefully your return, so you don't -- you know, continue strong but the margins, you will see lower margins in those new businesses.

Thank you.

Our next question comes from Michael McCormack of Bear Stearns.

Thanks, guys.

Just a couple of questions.

With respect again to dilution next year, you guys mentioned that you're going to, you know, probably take some actions to offset the dilution from the equity units, should we be looking at that as sort of a one on one or would you be doing actions that would take care of that plus perhaps some of the other dilutive effects from the growth businesses and the USF impact?

And secondly, with the access line declines, obviously coming in a little bit weaker than we had expected, just a sort of a break down in those, between where you're seeing the most pressure between business/res, and then also whether it is primary or second lines?

Thanks.

In terms of the dilution to '05, I think, you know, we'll just have to decide what to do with our free cash flow next year, you know, whether we -- and it's going to depend on, as Glen mentioned earlier, you know, what other investment opportunities are there, but you know, we will either use it to -- I mean we will try to use it to the best advantage of our shareholders, either by purchasing additional stock, you know, over and above the amount that would be required to mitigate the dilution associated with the equity units, or paying down -- or a combination of paying down debt as well, because we will have about $250 million of current maturities that we will be able to pay off next year as well.

In terms of color on access lines, you know, our access line declines have been lower than the rest of the industry, in terms of what we expect for next year, or -- well, in terms of business/res, I think Karen has information handy there there.

Michael, Karen Puckett.

Good morning.

Hi.

In terms of the loss of what we're reporting for the quarter, 65% of that is primary and about 26% of that is second line remaining business.

I would say in general, same thing.

The primary ends are down, specific comments to, if you look at just year-over-year, quarter '03 quarter 3 '03 to quarter 3 '04, primaries continue to be down in inward demand.

Are improved.

So it's an inward problem on the primary.

On the second line, it basically is with the increase of DSL, more of an out problem.

And businesses are flat.

If you look at it from a churn perspective, I mean our residential primary churn is about 1.9%, so it points to it's more of an inward problem.

The second line churn is about 3.8%.

Terrific.

Thank you very much.

Our next question comes from Jim Moorman of Prudential Equity Group.

Hi, just a follow-up on the last question.

What percentage did you say was of the loss of second lines, and also, if you could give your percent of residential lines that are secondary lines, and the last thing, if you could just give the USF in the quarter and the break down between the federal and state?

Thank you.

Okay.

The loss of the 15,900 lines that we've lost, 65% were primary, 26% were second lines.

And about 7% of our access lines -- of our residential access lines are second lines, Jim.

Okay.

In terms of the universal service fund revenues for the quarter, we had about $47.4 million of interstate revenue, and about -- a little over $9 million, almost $9.1 million of intra-state USF.

So it's -- so a total of 56.5 million.

All right.

Thank you.

Sure.

Our next question comes from Chris King of Legg Mason.

Good morning, guys.

A couple of quick questions for you.

One just wanted to clarify, you guys had a roughly $16 million sequential increase or so in SGA.

Just wanted to clarify that roughly 8 million of that was more one time in nature due to the audit of the operating taxes.

And second question was concerning the share buybacks in the quarter which seemed to have slowed a little bit with only about a million shares bought back.

Just was wondering, your cash balance increased by roughly 72 million or so.

How do you -- how do you look at share buybacks and was it more of a question of valuation of your share price ticking up in the quarter that you decided to wait on that or what your thinking behind that is?

Chris, this is Glen, I will take the last question first.

The share buyback, yeah, we were buying opportunitisticly.

And decided we had already purchased a large percentage, close to 75% of the program, so we decided to take it slow in the third quarter and see what happened.

Our average price on the buyback is about $29.20, something like that.

And if we were watching it closely, we fully expect to complete the buyback, barring any potential negative market consequence, but we have 80% of those shares bought now. 80% of the program out, done.

So we will expect to finish that up in the weeks ahead.

Chris, in terms of the $16 million, yes, about 7 to $8 million of it is basically one-time.

If you look at it on a sequential basis, second to third quarter, it's closer to $7 million.

That more or less is a nonrecurring item or one-time item related to the audits.

Okay.

Thank you very much.

We have time for one more question.

Our final question is a follow-up from Donna Yeagers of Janco Partners.

Hi, I just had a quick follow-up on those numbers, the churn numbers that Karen gave is that churn per month or per quarter?

That was a per month average.

Great.

Thanks.

Okay.

I guess that was our final question.

In closing, I will say we are pleased with the success of our bundle offerings for the quarter.

The long distance growth, the DSL growth in the quarter, and vertical services revenue increase was strong.

We believe that CenturyTel is well positioned to meet the continued competitive, regulatory, and economic challenges faced by our industry.

With the completion of the Echostar dish and Cingular reseller agreements we look forward to adding satellite video and wireless services to our bundles in the months ahead and enhancing the bundled service packages we offer our customers.

CenturyTel is financially strong.

And we believe our stable cash flow has provided us the flexibility to carefully consider various options to deliver value to our customers and to our shareholders in the months and years ahead.

Thank you for participating again on our call today.

And we look forward to speaking with you in the coming months.

Ladies and gentlemen, thank you for participating in today's conference.

This concludes the program.

You may all disconnect.

Everyone have a great day.